DEAR BOB: I sold my principal residence to my daughter in 2006, using gift equity. The loan officer structured the loan as a $400,000 purchase price with a $307,000 mortgage. My question is will I owe taxes on the $93,000? I owned and lived in the house for four years –Perie L.
DEAR PERIE: If the home was your principal residence at least 24 of the last 60 months before its sale to your daughter, then up to $250,000 of your capital gain is tax-free.
Purchase Bob Bruss reports online.
Although your letter is a bit confusing, it sounds like you received the $307,000 mortgage proceeds and gave your daughter a gift of the $93,000 equity. Because that gift amount exceeds the annual $12,000 tax-free gift exemption amount per donor, you must file a federal gift tax return.
But no gift tax will be due if your total nonexempt lifetime gifts are less than $1 million. When you die, your total lifetime nonexempt gifts up to $1 million will be subtracted from your federal estate tax exemption (currently $2 million). For this reason, most real estate gifts are not taxable. For full details, please consult your tax adviser.
SHOULD HOMEOWNER SELL TO A ‘CASH FOR HOMES’ BUYER?
DEAR BOB: My home has been listed for sale over nine months without selling. I’ve dropped the asking price to $36,000 less than I paid a year ago. My Realtor has done everything she can. But now I can’t afford to pay a sales commission and pay off my mortgage. Nor can I afford to stay and pay the mortgage payments. What about those “cash for homes” companies I see advertising? –Mary McC.
DEAR MARY: It sounds like you bought at the peak of the market last year. The “cash for homes” companies buy at huge discounts from market value in return for quick cash sales.
Why are you selling? Unless you absolutely must sell now, I suggest you wait. Maybe you can rent part or the entire house to help pay the mortgage payments.
Even in the best of times, it is difficult to sell a home and come out even, after paying sales expenses, until after at least three to five years of ownership.
NO TAX DEDUCTION FOR HOME-SALE FIX-UP EXPENSES
DEAR BOB: We plan to sell our house in 2007. I seem to remember that home fix-up costs prior to a sale are deductible from the sale price for tax purposes. Does this deduction still exist, and what timing or other conditions apply? –Richard B.
DEAR RICHARD: In 1997, Congress abolished that tax subtraction (not a deduction) for home fix-up expenses incurred shortly before sale.
However, if you make significant home capital improvements, the cost can be added to your home’s adjusted cost basis to reduce your capital gain upon sale. Your tax adviser can provide full details.
The new Robert Bruss special report, “How to Buy Fixer-Upper Houses with Little or No Cash for Fun and Fortune,” is now available for $5 from Robert Bruss, 251 Park Road, Burlingame, CA 94010 or by credit card at 1-800-736-1736 or instant Internet delivery at www.BobBruss.com. Questions for this column are welcome at either address.
(For more information on Bob Bruss publications, visit his
Real Estate Center).